Dynegy hid $850 million Citicorp loan, suit says

MICHAEL DAVIS, Copyright 2003 Houston Chronicle |
June 7, 2003

Dynegy hid an $850 million loan from Citicorp in an off-balance-sheet company in 2000 to preserve its credit rating in the face of mounting debt, a group of Dynegy shareholders alleges in an amended lawsuit filed Friday.

When information about that transaction and others was disclosed, Dynegy investors lost money as its shares tumbled, the suit says.

The deal, called Black Thunder, is under investigation by the U.S. attorney's office in Houston, Dynegy said in a quarterly financial report filed last year.

The shareholder suit, led by the University of California, alleges that Dynegy misled shareholders by failing to disclose the full details of the Black Thunder deal in a timely manner.

Dynegy is reviewing the amended complaint and will analyze the claims, Dynegy spokesman John Sousa said.

Friday's amended complaint added several prominent financial institutions as defendants. Those institutions acted as underwriters and received fees for Dynegy debt offerings that were able to be sold based on false information from the company, the complaint alleges.

The company was motivated to hide the Black Thunder loan because it could have led to a downgrade of Dynegy's debt, which would have required the company to commit additional cash to back other debt, the suit said.

The result, after Dynegy consolidated Catlin on its balance sheet, was that the Catlin debt was eliminated and Dynegy showed Black Thunder's investment in Catlin as an equity interest on its own balance sheet, the suit says.

Calls to Citigroup seeking comment on the allegations were not returned Friday.

The deadline for filing the amended complaint against Dynegy had been extended numerous times to enable the company and plaintiffs time to negotiate a settlement.

A spokesman for the University of California would not confirm whether those talks were still under way but said the school remains open to settlement talks.

"The university remains interested and open to such talks if they are likely to bear substantive results for shareholders," said Trey Davis, a spokesman with the university. Dynegy was initially eager to resolve the case, he said. "With today's deadline for submission, we felt it was appropriate to file this document."

The University of California system lost about $113 million on its investment in Dynegy shares between Nov. 1, 2000, and May 7, 2002.

The Black Thunder transaction is one of two deals cited in the shareholder lawsuit. Dynegy earlier settled Securities and Exchange Commission charges related to the other transaction, known as Project Alpha. It agreed to pay $3 million but did not admit any wrongdoing.